Finance minister P Chidambaram has a reason to smile. The government's revenues from securities transaction tax (STT), which was introduced in the 2004-05 Union Budget, has recorded a significant rise on the back of the historic bull run in the current year.

If finance ministry sources are to be believed, the government has collected about Rs 3,400 crore by way of STT during April-December and may see another Rs 1,000-1,200 crore coming in to the kitty in the last three months of the fiscal, provided the stock market continues its winning streak. This compares with Rs 1,500-2,000 crore that the government is estimated to have mopped in 2005-06.

In 2004-05, STT revenues were to the tune of approximately Rs 1,000 crore, much below the government's expectations of Rs 2,000 crore. That had prompted the FM to hike the rates in the subsequent year. The hike in STT rates and rising turnover on the bourses could have boosted the government's STT income this year, say brokers.

The combined turnover (value of shares traded) at the country's two premier stock exchanges, BSE and NSE, shot up to Rs 21.2 lakh crore in April-December, compared to Rs 23.9 lakh crore in the entire 2005-06 and Rs 16.6 lakh crore in 2004-05. Average daily turnover jumped to Rs 11,237 crore from Rs 9,504 crore and Rs 6,556 crore.

Brokers fear that higher STT revenues may encourage the FM to raise the rates further after a 25% hike last year. There is a feeling among day traders like jobbers and arbitrageurs that the current rates are on a higher side, putting pressure on margins and trading volumes.

We hope there would not be a further rise in STT rates. We have already made representation to the finance ministry that overall transaction cost in India is very high compared to developed markets, said VK Singhania, chairman, Association of NSE Members of India (ANMI).

The market expects the government to surpass its STT collection target for 2006-07. Currently, delivery-base transactions attract STT of 0.125% on both buy and sell sides, while in case of non-deliver based transactions, the rate has gone up from 0.02% to 0.025% on sale side. In the F&O segment, STT is charged on sale side at 0.017%. The STT revenues will be in the region of Rs 4,000-4,500 crore this year. We want the government to lower the rates particularly on F&O trades.

This would help improved liquidity and push up volumes in the market, said BR Bagri, chairman and CEO of BLB Ltd, one of leading arbitrageurs in the country.

The government had introduced STT in 2004-05 at the uniform rate of 0.15%. The proposal did not go down well with the trading community then.This prompted Mr Chidambaram to modify the rates and offer differential rates for different market players.

The STT was brought down from 0.15% on buyers for delivery transactions to 0.075% for buyers as well as the sellers. It was reduced to 0.015% on non-delivery transactions with effect from October 1, 2004.